The contracts will be larger than Job Centre Plus areas, and could cover whole city-regions or counties, according to the strategy.
The strategy also says that welfare providers will be given bigger rewards the longer their clients successfully stay in work.
'Link-up with local services'
But the Local Government Association warned that the government must make sure the strategy links up with local services.
LGA chairman Sir Simon Milton (Con) said: “It is essential that putting welfare in the hands of private sector "prime" contractors, who then deliver programmes through a network of sub-contractors, is not detached from other public services.
“Decision-making and funding needs to be placed closer to the level of where people live and work, so that groups of councils working with other bodies, can ensure that the different services needed by a long-term unemployed person help them into work.
“Flexible childcare, mental health services, transport, housing, GPs and other key services must work closely together to help people into work."